Citigroup comes out with its earnings report.

New York – Citigroup Inc. today reported net income for the third quarter 2020 of $3.2 billion, or $1.40 per diluted share, on revenues of $17.3 billion. This compared to net income of $4.9 billion, or $2.07 per diluted share, on revenues of $18.6 billion for the third quarter 2019.

Revenues decreased 7% from the prior-year period, primarily reflecting lower revenues in Global Consumer Banking (GCB) and Corporate / Other, partially offset by growth in Fixed Income Markets, Investment Banking, Equity Markets and the Private Bank in the Institutional Clients Group (ICG). Net income declined 34% from the prior-year period, largely driven by the lower revenues, an increase in expenses and higher credit costs. Results include a $400 million civil money penalty in connection with consent orders recorded in Corporate / Other. Earnings per share of $1.40 decreased 32% from the prior-year period, primarily reflecting the decline in net income.

Michael Corbat, Citi CEO, said, “We continue to navigate the effects of the COVID-19 pandemic extremely well. Credit costs have stabilized; deposits continued to increase; and revenues are up 3% year-to-date. Our Institutional Clients Group again had very strong performance, especially in Markets, Investment Banking and the Private Bank. The backbone of our global network, Treasury and Trade Solutions experienced strong client engagement in the face of low interest rates. Although Global Consumer Banking revenues remained lower as a result of the pandemic, we did see higher activity in our mortgage and wealth management products.

“Our capital position strengthened during the quarter with our Common Equity Tier 1 ratio increasing to 11.8% and our Tangible Book Value per share increasing to $71.95. We remain committed to returning capital to our shareholders, subject to the industry-wide approach determined by the Federal Reserve.

“We are committed to thoroughly addressing the issues contained in the Consent Orders we entered into last week with the Federal Reserve and the Office of the Comptroller of the Currency. These investments will not only further enhance our safety and soundness, they will result in a digital infrastructure that will improve our ability to serve our clients and customers and make us more competitive,” Mr. Corbat concluded.

Percentage comparisons throughout this press release are calculated for the third quarter 2020 versus the third quarter 2019, unless otherwise specified.

Source: Citigroup

JP Morgan Chase earnings report

On October 13, 2020, JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) reported 2020 third quarter net income of $9.4 billion, or $2.92 per share, compared with net income of $9.1 billion, or $2.68 per share, in the third quarter of 2019. A copy of the 2020 third quarter earnings release is attached hereto as Exhibit 99.1, and a copy of the earnings release financial supplement is attached hereto as Exhibit 99.2.

Source: JP Morgan Chase

The COVID/AI Era of Law …

For five months now, the United States has been in lock-up.  One of the ugliest hashtags I have seen and heard used is #AloneTogether.  At first it reads like an oxymoron.  If we are alone, how can we be together.  It sounds like the status of the last few years of my first marriage.  Sharing space with an energy pulling against you is draining.

The COVID-19 pandemic may be casting a new meaning on that phrase.  If you have the misfortune of having to share more time in energy draining space with a spouse that you are considering divorcing, #AloneTogether may be the last rallying cry before calling a divorce attorney.

Technology may also impact how we view the phrase.  Zoom calls and TEAMS meetings are a growing part of the workplace lexicon.  The spaces that we enjoyed being alone in at home have become offices and digital conference rooms where everything from sales pitches to digital happy hours are taking place.

For the extra sensitive, walking down a sidewalk and observing people take the extra precaution of taking a wider berth around you while hindering their own breathing by wearing a mask can be disconcerting.  The slightest attempts at saying “hello” or “good morning” are increasingly avoided because of fear that the slightest exhale from a fellow human may lead to a 14-day quarantine or time in a hospital on a ventilator.

In theory, the state quasi-mandated environment of staying away from each other should result in a reduction in analog contacts as our world goes increasingly digital.  Hard for kids to get into school fights when kids are at home distance learning.  Tough to get in a shouting match with a restaurant cashier over an order when Uber Eats, Grub Hub, or Door Dash is picking up your food.

There will be controversies; they will continue.  We are humans, taking conflict to levels that exceed what other lifeforms endure.  Legal philosophy should have us asking “Why are we engaging?” or “What is engagement?”.  Society will have to come up with tweaks to the rules for human engagement in a digital age where a corona virus is forcing on a global scale the reconstruction of society.  Should judges have to consider new threshold principles before trying to apply statutes, laws, rules, code, from a pre-COVID, non-artificial intelligence world to an issue before them arising out of a digital environment?  Will we need a new definition for personal spaces? For zones of danger?

In the area of political law how we structure political engagement and eventually the rules for engagement are already taking on a new twist.  For example, the recent squabble in the United States over funding for the U.S. Postal Service appears to be a result of the controversy over the use of mail-in ballots and the possibility of mail fraud.  As I ponder these questions, I suspect that new legal principles will appear as COVID-19 continues to change how we address the question of whose rule should prevail during political conflict.

What does the narrative of fair trade with China mean?

This morning I watched the Fox Business Network‘s Mornings with Maria.  They have been featuring news clips of an interview that U.S. Secretary of State Mike Pompeo had with host Maria Bartiromo where he criticizes China’s trade policy toward the United States and warns Americans of the Chinese intent to steal American intellectual property and Americans’ personal information.  The United States has been making it clear for years that it is unhappy with what it describes as an imbalance in trade between the two nations.

China has a potentially large consumer market, its emergence stymied in part to its current status as a creditor nation where it finances other nations, including the United States versus living off of the dead aid provided by western nations as part of their policy of noblesse oblige toward emerging, lesser developed countries.  In addition, given its growing economic power, it is easily in a position to influence economic affairs in southeast Asia.  As a provider of inexpensive telecommunications equipment it has been able to enter Europe’s telecommunications market providing competition for American made telecommunications products.

But at the heart of the American narrative may be the fear that the Anglo-American world view or philosophy is being challenged by an alternative Chinese view that, if not held under control, will replace the Anglo view thus making the current American narrative on political economy i.e. the greatness of the republican form of government combined with a free market, less attractive for leadership in other nations to use the American model for governing their domestic and foreign trade affairs.

Pompeo and other American leaders have been using the media to signal to Americans that China’s actions are a threat to the American economy thus a threat to the American way of life.  I can see the broad strokes.  For example, if China continues to lock the US out of additional trading opportunities in China and can price the US out of European and other Asian technology and manufacturing markets, America’s wealth and trade influence would shrink and the US would be forced to become more self-reliant.  America, facing a challenged supply chain, would see shortages and increasing prices for goods and services thus the threat to the American way of life.

Pompeo also describes China’s activity as a threat to American democracy.  That threat I don’t buy into and I see it more as a jingoistic ploy than anything else.  Democracy refers to a citizen’s ability to participate in the process whereby political leaders are selected.  Pompeo has yet to state his case in a cogent manner.  He has insinuated that China has deployed an influence campaign targeting voters and elected officials alike but has provided no specifics.

In addition, the terms fairness and balance are continuously uttered, likely part of the jingoism campaign, as Americans tend to conflate fairness and balance with democracy.  A fair and balanced trade relationship between two countries has nothing to do with how the leaders in each respective country are chosen.  Americans should be asking themselves and their leaders why connecting these points creates such a sound political narrative that US electorate would have no other choice but to support any legal initiatives or actions that promote escalated tensions.

And the legal actions and initiatives are being turned up.  The Justice Department recently told PBS News that 60% of its trade cases are against China and that its actions against China are more in line with stopping illegal activity versus expressing an intellectual bias.

I see law as the codification of an originating philosophy transmitted via a narrative and  refined by politics and policy.  What is missing here is the jurisprudence.  For the citizen to properly understand the government’s legal actions against China trade policy, the focus has to come off of messages that conflate democracy, fairness, and balance, and look for the philosophy that is being promoted.  Conflation promoted by government officials should open up the citizens’ minds to questions about the mismatch between the politics, the policy, and the messaging.

Getting to the why is critical.

Watching “X-Men: Days of Future Past” through the civil rights movement’s civil war …

I have heard some commenters refer to Stan Lee’s “X-Men” as a treatment of the civil rights movement of the 1960s.  I have never taken to the comparison of black people to “mutants.”  While I acknowledge that Mr Lee may have had a noble cause in starting a discussion on equality, diversity, and the inclusion of different cultures, ethnicities, and creeds into the American melting pot, but to be likened to a plant or animal with inheritable characteristics that differ from those of the parents, leads to questions such as, “Did Mr Lee and the good people at Marvel take a look at the definition?” “Who exactly are the parents that blacks differ from?” “Should we get rid of our inherited and unique characteristics in order to be equal?”

I won’t harp on the above questions too much because for the average movie goer the bandwidth may not be available for considering such social questions beyond the need just to get away and watch an exciting movie for a couple hours.  On the other hand, anyone who has read the comics as a kid or has delved deeply into the Marvel Cinematic Universe tends not to be too put off by the social observations.  Besides, lasting imagery and coming away from each viewing having observed different angles on the characters or the message are characteristics that push a movie toward the classic realm.

I hadn’t seen “X-Men: Days of Future Past in a couple years so revisiting it tonight on the FX channel gave me a chance to go a little deeper into the messaging.  The story was set in two time periods: in 1973 with the central event being the Paris peace talks to bring the Vietnam war to an end; and fifty years later where mutants are brought to the brink of extinction by an army of mechanical sentinels.  The X-Men must reach back telepathically to the past to stop an event that that, if left unchecked, will contribute to the start of the global war on mutants.

Three principal characters stood out such that they caused me to unpack the possible civil rights connection.  “Charles Xavier”, played by Patrick Stewart and James McAvoy; “Erik Lensherr”, played by Ian McKellen and Michael Fassbender; and “Raven Darkholme”, played by Jennifer Lawrence.  Charles Xavier and Erik Lensherr are trying to prevent Raven Darkholme from killing the man who would eventually create the sentinels responsible for near annihilation of mutants.  Raven represented to me the militant arm of the civil rights movement, an arm led by leaders such as Stokely Carmichael, Huey Newton, and Bobby Seale.  Raven, at one point during the story, expresses to Charles her anger and disappointment stemming from his apparent abandonment of his fellow mutants particularly during the period of crisis where mutants were facing an existential threat. This anger and disappointment was also expressed by the more militant arm of the civil rights movement where they saw the non-violent, peace first approach of leaders like Dr. Martin Luther King as ineffective.

I saw Charles as representing the more moderate arm of the civil rights movement.  He did not see violence as the way to forge any peace with non-mutants but did not display to me any naivete of kumbaya and hand holding with non-mutants.  Charles’ preferable approach was to connect all mutants and teach them how to see themselves as great individuals.  While it could be easy to liken him to a Dr. King, Charles’ realism kept him slightly to the right of Dr. King.

Erik was the separatist. And yes, the civil rights movement did have separatists most notably Malcolm X.  Erik’s degree of pragmatism altered with changes in the facts on the ground.  He would have gladly took up arms against non-mutants, but if Raven’s assassination attempt today meant extinction of mutants tomorrow, then neutralizing Raven in the short term in order to secure a separate but strong mutant nation in the long run was the logical play.

This to me has always been the beauty of the science fiction/fantasy genre.  It provides an alternative backdrop for taking a look at ourselves.  The “X-Men” movie franchise has been able to paint that canvas by using the time machine and taking us back to the 1960s, 1970s, and 1980s, using events from those decades to provide us with teachable insights.  Using mutants as an analogy for race is not perfect.  As I discussed earlier I don’t particularly care for it and I would digress a bit and say I don’t care for the term “race” either, but in this specific space it works.

There is no such thing as economic equality

“Who is creating equal. I’m trying to find the equation.” — Louie Bagz

Byron Allen, a black billionaire media business owner, appeared on Fox Business News today sharing his insights on economic equality.  Economic equality has been one of the major topics during the last five or six weeks since the death of George Floyd last May.  At first glance, you could argue that Mr Floyd’s death had nothing to do with economics and that the media’s highlighting of the plight of black people in the American economy is another angle to either drive up ratings by keeping the story hot or to keep the American public distracted from other undercurrents.  Frankly I think it’s a bit of both.  Conflating an economic argument with an act of horrific brutality gives Emmy and Pulitzer chasing journalists something more to talk about.

On the flip side, you can make an argument that Mr Floyd’s death was related to economics based on an economic decision he made that tragically led to his death.  Mr Floyd was trying to make a purchase with a counterfeit twenty-dollar bill.  Somewhere in his decision matrix he concluded that his optimal currency for use in exchange for some other good or service was a dollar bill not recognized as legal tender in the United States.

But currency connotes more than just money in circulation.  The amount of currency one is in possession of transmits a message about the value that an individual brings to market.  Is this individual willing and able to pay for goods and services that I have in my inventory such that I am willing and able to supply such goods and services?  In Mr Floyd’s case that value, at that moment in time, may have been zero.  But did that necessarily mean he was not economically equal to the merchant he wanted to trade with or anyone else for that matter?  I would argue no for the simple reason that there is no such thing as economic equality.

Let’s first define “economic.”  Economic, which is derived from “economy”, entails the management of income and production.  To be economic is to derive and apply certain rules regarding the management of resources in order to achieve some targeted income or production goal.  An economy is a system of rules or decision-making matrices that determine how wealth and income are to be distributed and how production is to be managed.

“Equality” is to do or to make something equal.  Two or more items are said to be equal when they are of the same quantity, size, or value.  Two or more individuals may be considered equal where they have the same abilities, rights, or rank.  But can Mr Floyd’s decision-making matrix be equal to mine?  Would his approach to deciding between producing more bread versus producing more wine equally reflect mine? For the simple reason that no two people are alike I would conclude that economic equality does not exist because no two economic decision-making systems for income, output, and wealth are alike or can be alike.

Can we find economic equality on a macro or national level?  Specifically, can we find economic equality between Anglo-Americans and Afro-Americans?  Again, just like on the individual level, you won’t find the non-existent.  Anglo-Americans, as a collective, follow the rules of income, wealth, and production as determined by a minority made up of political, banking, and religious elites for the benefit of the masses to the extent sharing those benefits with the masses protects the interests of the elite.  After acquiring by force land, minerals, and waterways, Anglo-Americans were able to apply technology and free labor to build an economy and refine a political economy that applied rules of wealth distribution for its people.

Afro-Americans were not at the table when the rules of acquisition and distribution were made.  You cannot enjoy economic equality when you were never the author of the economy’s rules.

But even if Afro-Americans had garnered a sufficient amount of land and other resources such that they could design their own economy, would there be “economic equality”?  I would argue no because differences in lineage, history, environment, and values, to name a few characteristics, would likely create a decision matrix different to those of Anglo-America.  Even if per capita production and quality of goods and services were on par, I would argue that because of the difference in decision rules, both economies would not be equal.

And would it necessarily be a bad thing if both groups were not economically equal where each group decided via its own standards how best to distribute income and wealth?

Public policy should encourage banking to go back to its roots: financing commerce while supporting high yield…

The unbanked are unbanked because they have nothing to bank.  In a nation driven by capital formation and returns on capital, focusing on the unbanked seems like putting the horse before the carrot.  The American Treasury Department and the central bank should be focusing public policy on encouraging capital formation and generating high yield.  Nothing in the U.S. Constitution says that consumers should be encouraged to borrow or that banks should be obliged to lend to the consumer class.

Political responses such as the Community Reinvestment Act, the Dodd-Frank Act, or the creation of the Consumer Financial Protection Board cater to voters but overlook the need for encouraging the accumulation of capital goods necessary for driving the American economy.

More importantly, political responses mentioned above serve to incentivize consumers to enslave themselves to credit even while the last four decades have seen real wages go stagnant.  The political class on the left is quick to leave out consumers’ complicity in the financial downturn of 2007-2009 where consumers were encouraged to borrow against their shrinking means to repay.  Consumers do not need protection from banks.  We need our mindsets redirected in our approach to banking.

Each household needs to rebuild their capital buffer.  It is easier said than done especially in a transition period where the timeline for capital’s replacement of labor with automation and artificial intelligence is being sped up.  Not only is more work being done from home but businesses are determining whether the benefits of keeping employees at home outweigh the costs of bringing them back in-house.  A number of employers have been transparent with updating employees on their engagement with companies offering AI-driven resources that increase efficiency.  Larger companies are partnering with technology companies whose mission is to reduce the time employees spend on certain tasks.  These are threats to labor and income and in this environment not only is the consumer tasked with increasing household capital formation but with seeking additional or alternative opportunities that provide for increases in income, savings, and investment.

One way, in my opinion, to increase capital while deriving additional income is for public policy to encourage high yield on capital.  The consumer who flips her mindset from shopper to investor needs an environment where her savings can accumulate at a faster rate; where higher residuals can be reinvested into her principal holdings and create appreciation.  Public policy should support full employment of capital and maximum prices for capital. How does the US get there?

One way to get there is for banks to abandon their risk-based interest rate pricing model, where higher interest rates is the price that riskier customers must pay for borrowed funds.  Rather, banks should abandon consumer lending altogether.  Lending money to a consumer in a stagnant income, labor replaced by automation environment so that the consumer can build a deck, finish a basement, or send a kid to school is what I call low value enterprise lending where the loan is being applied to a consumer’s wage income versus residuals the asset provides.

Instead, interest rates should reflect the competition between borrowers seeking to demonstrate their enterprise ideas will provide the greatest returns to capital and equity.  High interest rates should not be charged because of a high risk of failure.  Rather, high rates should be charged because where the lender sees high returns to equity in the enterprise, the lender seeks to capture some of that value.

Banks, then, should abandon consumer lending and put energy and resources into commercial or merchant banking.  Consumer involvement in banking should be limited to establishing savings or investment accounts with banks or owning stocks in banks.

Again, the upside from this model for banks, a focus on lending to merchants that leverage real assets to make income.  The upside for the consumer is less borrowing and more investing thus greater capital formation.  Also, the consumer may learn how to plan purchases over a long term versus seeking the psychic value of getting something now and paying for it later.  For example, a consumer may put away cash over some determined period of time to purchase that new deck without having to burden themselves with debt.

Or, a consumer may seek out a group of private consumer lenders who are not connected to the banking system thus reducing the chances of shock to the system should a borrower renege on a loan.  They will be forced to rely on the courts, lawyers, and mediators for resolving any conflicts with private lenders.

 

 

Identifying the economic value within the African Diaspora and designing currency to transmit it …

Today while waiting for a haircut, a lovely young lady, who was waiting on her companion, asked me if I was a professor.  I was caught off guard by the question for it seemed almost prescient in nature.  I had been an adjunct professor back in Maryland, I told her.  She then asked if I had been on television. Again I informed her that I had made two appearances on a business news channel.  I expected the exchange to end there since her companion was finished with his haircut, but fortunately the conversation did not end there.  She proceeded to ask my opinion about the current state of the economy as it impacted black people.  I was happy to oblige since the topic was interesting and yes, when you get to engage a very attractive woman on the state of the political economy (underscore very attractive), you don’t pass it up.

The conversation turned to whether African Diaspora communities could use their own currency.  My answer was yes, but to get there we have to first identify a resource that could be used to generate an underlying value for the currency.  A true community is built on a resource the extraction, processing, and distribution of which leads to an industry that generates the income necessary for sustaining the communities members.

Second, there has to be a banking/financing resource in place to convert the assets of the underlying resource into loanable funds.

Right now we have very little of the above two components.  For example, Africans in America hold very little of its capital.  By some estimates, Africans in America hold approximately two percent of total capital in the United States. In addition, consider farm holdings by Africans in America.  Africans in America hold approximately two percent of all farms in the United States, according to the website ShoppeBlack.us.

Compounding the farmland problem is the lack of strong financial infrastructure through which not only lending can be accomplished but also trade in the securities that have underlying them black farm output.  There are approximately 45 black-owned farms located in 20 U.S. states.  There are, however, 14 black owned banks located in eleven states to support these farms.  It is a strong financial infrastructure that provides funding for land acquisition, seed, and new equipment and the current black owned facilities for lending are not enough.

Money is created when loaned funds for land acquisition, seed, and equipment are placed in a farmer’s checking account.  At this point black-owned banks could issue currency distributed by the Federal Reserve or create its own currency where a special currency is designed to be used by black farmers and any other industries related to or depending on black-owned farms including black-owned suppliers, black-owned restaurants, black-owned pharmacies and wellness stores, etc.

There is theory and there is application. With one to two trillion dollars in output, Africans in America could invest in more farmland while expanding their financial infrastructure in order to support lending, securitization of debt, and issuance of their own debt.  Where more land is not available, the next move may have to be the cultivation of intellectual capital and thus make greater inroads into the creative industry space.

On the other hand, Africans in America, rather than trying to replicate the existing model, may have to consider a completely new model for generating and trading currency, one where the resource is unique to and managed solely by Africans in America.

 

Will regulating social media benefit content providers in the African Diaspora?

Late last May, President Donald Trump stepped up his battle with social media by issuing an executive order intended to prevent the censure of political speech expressed on platforms such as Twitter and Facebook.  Mr Trump allegedly saw the last straw when Twitter showed the nerve to fact check the President by attaching a number of links to some of Mr Trump’s tweets.  He didn’t like that.

Mr Trump is not alone in his frustration with social media.  Other Republicans and conservatives have complained in recent years about what they deem as bias against conservative political viewpoints and alleged liberal political positions taken up by executives at the social media companies.

To combat the alleged bias, Mr Trump issued an executive order that would call for the Federal Communications Commission to issue rules that clarify portions of the Communications Decency Act of 1996 (47 USC 230).  The Act excludes Twitter, Facebook, and other interactive computer services from civil liability where they exercise good faith in removing and otherwise not accepting certain harmful content.  Taking censorship action beyond the scope of the “Good Samaritan” exceptions would paint them as publishers and cost them their protection from civil liability claims.

Specifically the Act reads as follows:

(c)Protection for “Good Samaritan” blocking and screening of offensive material

(1)Treatment of publisher or speaker

No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

(2)Civil liability. No provider or user of an interactive computer service shall be held liable on account of—

(A)
any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected; or

(B)

any action taken to enable or make available to information content providers or others the technical means to restrict access to material described in paragraph (1).[1]

Mr Trump would like rules that clarify the interaction between section (c)(1), exemption from treatment as a publisher, and section (c)(2), exemption from liability of a publisher, of the Communications Decency Act.  My issue is whether Mr Trump’s proposed path of action in any way hinders the ability of the African Diaspora community to exchange ideas and content for commercial purposes?

Maya Dollarhide defines social media as a:

” …. computer-based technology that facilitates the sharing of ideas, thoughts, and information through the building of virtual networks and communities. By design, social media is internet-based and gives users quick electronic communication of content. Content includes personal information, documents, videos, and photos. Users engage with social media via computer, tablet or smartphone via web-based software or web application, often utilizing it for messaging.”

A high percentage of adults within the African Diaspora use social media.  According to Pew Research, 69% of African American adults use at least one social media site compared to 73% of whites.  Whites and blacks appear on par when it comes to social media usage.

When it comes to commercial reasons for using social media, 29% of consumers use social media platforms to research or buy products and services.  Although the “social” or lately the “political” component of social media gets a lot of attention these days, there is a marketing component to social media where these networks allow for businesses to engage with their customers.  Social media provides a relatively lower cost alternative to traditional media marketing mechanisms.  A well done social media campaign can have information go “viral” about goods or services, and send this information instantaneously around the globe.

We have to be mindful that the drafting and implementation of rules to be used to keep social media companies in compliance with the Communications Decency Act may not come to pass depending on the outcome of this fall’s election.  Should Mr Trump lose in November, the Democratic victor will likely put in place a Democratic chairman and along with his or her Democratic colleagues squash the idea of going forward with any rules that give the impression that the Commission has entered the business as social media speech police.

Even if Mr Trump wins and a Republican majority remains in place at the Commission, I believe the Commission will craft very narrow rules in order to prevent any First Amendment violations.  More importantly, rules that keep social media companies from acting as editors benefit the global exchange of commercial information between members of the African Diaspora.

While I doubt that it is ever in the best interest of Facebook to edit or alter purely commercial communications, advertisements, etc. between an African American wholesaler in Atlanta, Georgia and potential retail distributors and/or end users in Accra,  Ghana, added protections that keep communications unimpeded cannot hurt.

The narrower the rules, the better it is for our self-interests.